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Majority unprepared for financial burden of social care

Most people over the age of 65 have no
plans in place to pay for their long term care,
research shows.

The survey for the Association of British Insurers (ABI)
reveals 89% of over-65s have made no plans to pay for social care, while
only 10% have.

This is despite around half of all care users having to
self-pay in some way.

At the same time, separate analysis suggests over a third
of the population could benefit from incentivising ways of self-funding care,
for example through tax exemptions.

The ABI is calling on the government to urgently publish
the social care Green Paper and consider how to target interventions for
self-funders to help solve the social care funding crisis.

The Populus survey found 51% of people saw the state
pension as the most likely source of funding to pay for care, with only 17%
saying insurance and 26% saying they would sell their home.

According to an analysis by the Pensions Policy
Institute, an effective target group for incentives to help self-funders are
those who have savings of more than the means test threshold (£23,250), but
less than £200,000. This target group makes up approximately 37% of people in
England aged over-50.

Among the target group, 90% of those aged 65-79 own their
home outright, and half of these have over £300,000 in housing wealth.

Among 60 to 64-year-olds in the target market, 25% have
over £230,000 in pension wealth and this is likely to increase in future.

The analysis concluded that many of the next generation
who need care will ultimately have to use housing wealth to pay for it, but
pension savings can play an increasing part in the longer term.

The report also analyses five options for self-funding of
social care, including introducing a new Care ISA with no inheritance tax paid
on residual amounts at death, tax-free pension withdrawals if used to purchase
an insurance product that covers care costs, and releasing equity from a
property to purchase an insurance product that covers care costs.

Yvonne Braun, director of Policy, Long-term Savings and Protection at the ABI, argued that the social care system and how it is funded desperately needs an overhaul.

“People simply aren’t preparing to pay for their care
costs and this needs to change,” she warned.

Braun added that while insurance and pension savings will
never be the whole answer to the social care funding question, it can play an
important role.

Rachael Griffin, tax and financial planning expert at
Quilter, said it is likely there will need to be some kind of
combination of measures to ensure it is a system that works for the
largest part of the population.

“What is also clear is that while the state needs to be
making a provision and needs to be clear on what they are providing, there also
needs to be a substantial boost in self-funding and the government need to be
carefully considering what kind of incentives they use to drive the right
behaviours and encourage people to save,” she added.